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$2 billion funding extension could carry CARS program to Labor Day

November 15, 2010

Congress on Thursday passed a $2 billion expansion of the "cash for clunkers" program. Officials said the supplement would last until Labor Day. Without it, the program would have been suspended Friday.

The wildly popular Car Allowance Rebate System, or CARS, burned through its initial $1 billion allotment in less than two weeks. The government said Aug. 5 that more than $775 million of the original $1 billion fund had been spent, with many more claims waiting to be processed. The $3,500 or $4,500 vouchers were awarded for about 185,000 clunker trade-ins.

Some dealers have complained about the government’s administration of the program, saying they’ve had trouble processing paperwork and getting their reimbursements for trade-ins.

Transportation Secretary Ray LaHood said the agency has fixed problems with its Web site, He added that Citigroup, which is helping manage the clunker program, also beefed up its staff on the project to 300 workers from 100.

Four of the five top-selling new cars in the CARS program are made by foreign automakers, according to transportation department data, and more than 80 percent of the vehicles turned in were trucks and sport-utility vehicles.

The top-selling new car is the Ford Focus, followed by the Toyota Corolla, Honda Civic, Toyota Prius and Toyota Camry.

The new vehicles on average get 25.4 miles per gallon, compared with an average of 15.8 mpg for the trade-ins. The predominant transaction so far has been to trade in a pickup, SUV or van for a sedan, with the result that the new vehicles go 61 percent farther on a gallon than the old vehicles did.

The jolt in sales left some dealers with dwindling inventory. Other dealers don’t consider the program to be the silver bullet that will turn the industry’s fortunes, but rather as helping to jump-start consumer confidence to shop.

Eric Fedewa, an analyst with the consulting firm CSM Worldwide, said the CARS program is a hit because it is stimulating demand for all vehicles—foreign and domestic.

"In dealerships nationwide, the showroom traffic is unbelievable right now," Fedewa said. "Even if people don’t qualify, they are still being enticed to go look at vehicles."

The annual selling rate extrapolated from July deals came to 11.2 million vehicles, the first month this year that measurement exceeded the depressed 10-million pace. Three companies—Ford, Hyundai and Subaru—reported actual sales increases from a year ago.

The program offered a shot in the arm for the auto industry, which through June was running roughly 30 percent below its 2008 sales numbers.

Dealer requirements loosened

Responding to numerous dealer concerns, the National Highway Traffic Safety Administration made two changes to the CARS program:

• Dealers now can disable the clunker’s engine after they receive payment from the government for the credit, rather than before submitting a reimbursement claim. However, until the engine is disabled, the dealer must store the vehicle at a location under the control of the dealership.

Dealers must disable the engine within seven calendar days after receiving reimbursement. The certifications on the Summary of Sale form and the electronic form submitted by the dealer have been amended.

• The NHTSA no longer requires proof of insurance from Wisconsin and New Hampshire residents because those states do not require insurance.

CARS also boosts used-car sales

Used-vehicle sales are hitching a ride on the Cash for Clunkers bandwagon, some dealers say. But others caution that the program will hurt the used-vehicle market down the road.

Automotive News reported that some consumers who find that their vehicles don’t qualify for the government program are instead driving away in a used vehicle.